Checkers Drive-In Restaurants of North America, Inc. ("Checkers") is a national franchisor of fast-food restaurants. In November of 1988, it granted the sole and exclusive right to develop, own, and operate Checkers Restaurants in the Chicago Area to defendant S.Y.S. S.Y.S. is a corporation owned by defendants Thomas Singer, Andrew Sun, and John Young.

Mr. Kleban alleges, inter alia, that Defendants Singer, Terzakis, and Garrity "repeatedly" told him that Associates, the general partner of Southwest Partnership, had contributed one-half of Southwest Partnership's start-up capital, and that this statement was untrue.
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For this misrepresentation to be deemed material, "'there must be a substantial likelihood that [it] would have been viewed by the reasonable investor as having significantly altered "the total mix" of information made available'" to the investor. Basic, Inc. v. Levinson, 485 U.S. 224, 231-32, 99 L. Ed. 2d 194, 108 S. Ct. 978 (1988) (quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 48 L. Ed. 2d 757, 96 S. Ct. 2126 (1976)). Whether a misrepresentation or omission is material is a question of fact for the jury. Rowe v. Maremont Corp., 850 F.2d 1226, 1233-34 (7th Cir. 1988). Here, a jury could find that whether the general partner of a partnership made the stated capital contribution is material, and thus Mr. Kleban has satisfactorily alleged the first requirement.

In addition, Mr. Kleban adequately alleges that the defendants made this misrepresentation in order to mislead Mr. Kleban and induce him to invest in the Southwest Partnership. Mr. Kleban also alleges that he relied on this misrepresentation in deciding to purchase his interest in the Southwest Partnership and therefore this statement caused his loss. Mr. Kleban has thus stated a claim against these defendants for securities fraud.

I may dismiss this complaint only if "it appears beyond doubt that [Mr. Kleban] can prove no set of facts in support of his claim which would entitled him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). Here, I cannot say that Mr. Kleban will not be able to prove that he relied both on the misrepresentation about Associate's capital contribution and on Mr. Thompson's representations in making his May 24, 1992 investment. Consequently, Count I stands against the individual defendants.

Based on this same misrepresentation, Mr. Kleban has stated a claim for a violation of Section 12 of the Illinois Security Act and for common law fraud. Accordingly, Counts II and III stand against the individual defendants.

B. The IDDT Defendants

Mr. Kleban alleges a violation of Rule 10b-5 by the IDDT defendants.
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These defendants contend that this claim must be dismissed against them because Mr. Kleban does not allege any misrepresentations or omissions by them. Mr. Kleban argues that they are liable as control persons under Section 20 of the 1934 Act.
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To determine whether the IDDT defendants may be held liable as control persons, the court must examine whether they "actually participated in, that is, exercised control over, the operations of the [wrongdoer(s)] in general." Harrison v. Dean Witter Reynolds, Inc., 974 F.2d 873, 881 (7th Cir. 1992), cert. denied, 509 U.S. 904, 125 L. Ed. 2d 688, 113 S. Ct. 2994 (1993). Additionally, the court must consider "whether [the wrongdoers] possessed the power or ability to control the specific transaction or activity upon which the primary violation was predicated, whether or not that power was exercised." Id.

Siegel v. Levy Organization Development Co., 153 Ill. 2d 534, 607 N.E.2d 194, 198, 180 Ill. Dec. 300 (1992). I have combed through Mr. Kleban's complaint and cannot find a single allegation of a false statement of material fact made by defendant Burling Bank.
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Mr. Kleban alleges that the bank "knowingly engaged in, supported and/or ignored the actions and investment schemes" of the individual defendants. He also alleges that Burling Bank "orchestrated the filing of the bankruptcy case of CDDT to cover up the fraud perpetrated upon investors." In no place, however, does Mr. Kleban allege a misrepresentation made by the bank to induce him to act. In fact, the only allegation Mr. Kleban makes about Burling Bank's responsibility for his investment is an allegation that an officer of Burling "actively solicited investors for contributions to CDDT and various other related partnerships." Mr. Kleban does not allege that this officer made any misrepresentation in soliciting the investment, however. Accordingly, Count III will be dismissed against Burling Bank.

II. Negligent Misrepresentation

In Count IV of his complaint, Mr. Kleban attempts to state a claim for negligent misrepresentation. Again, Mr. Kleban's complaint does not specify which defendants he sues in this count, but in response to the various motions to dismiss, Mr. Kleban states that the claim applies only to the individual defendants. Accordingly, Count IV will be dismissed against Greenscape, RDC, Midwest Properties, Willowbrook, IPC, and Burling Bank.

To hold the individual defendants liable for negligent misrepresentation, Mr. Kleban must demonstrate that each defendant (1) made a negligent misrepresentation of a material fact; (2) is in the business of providing investment information; and (3) made the misrepresentation while guiding Mr. Kleban in his "business relations with third parties." Rankow v. First Chicago Corp., 870 F.2d 356, 362-63 (7th Cir. 1989) (quoting Black, Jackson and Simmons Insurance Brokerage, Inc. v. International Business Machines Corp., 109 Ill. App. 3d 132, 440 N.E.2d 282, 284, 64 Ill. Dec. 730 (1st Dist. 1982)) (emphasis in both originals).

I dismissed this claim from Mr. Kleban's original complaint because he alleged that he dealt directly with Messrs. Terzakis, Singer, and Garrity and that these defendants made misrepresentations in order to induce Mr. Kleban to deal with them. Because the defendants were not "third parties," I dismissed his claim.

Mr. Kleban has attempted to cure this defect by alleging that the defendants made their misrepresentations not to induce Mr. Kleban only to invest in CDDT and Southwest Partnership, but also to invest in other businesses, which Mr. Kleban names in his complaint. The misrepresentations alleged by Mr. Kleban, however, all relate to the CDDT and the Checkers operation. Moreover, even if these allegations were sufficient to show that Mr. Kleban could prove that the misrepresentations made by the defendants related to doing business with other people, Mr. Kleban still fails to state a claim for negligent misrepresentation because he has not alleged that the individual defendants are in the business of providing investment information. Mr. Kleban has not alleged an essential element of a claim for negligent misrepresentation, and therefore Count IV is dismissed against all moving defendants.

III. Violations of RICO

In Count V, Mr. Kleban alleges that the defendants violated § 1962(c) of RICO. To state a claim for a violation of this section, Mr. Kleban must allege conduct of an enterprise through a pattern of racketeering activity. Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985). To satisfy the pattern requirement, Mr. Kleban must fulfill the "continuity plus relationship" test by showing two or more predicate acts that are related to one another and pose a threat of continued criminal activity. Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1022 (7th Cir. 1992) (citing H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 239, 106 L. Ed. 2d 195, 109 S. Ct. 2893 (1988)). If the scheme constituting the predicate acts has ended, Mr. Kleban must demonstrate that the wrongful conduct "endured a 'substantial period of time' . . . [so that it] carries with it an implicit threat of continued criminal activity in the future." Midwest Grinding, 976 F.2d at 1022-23 (quoting H.J. Inc., 492 U.S. at 242).

Mr. Kleban has attempted to replead his RICO claim by adding several allegations. For example, Mr. Kleban argues that the fraud is continuing due to CDDT's bankruptcy petition and the ongoing case in the bankruptcy court. Mr. Kleban also adds allegations that other investors in the Southwest Partnership venture were defrauded. Finally, Mr. Kleban alleges that the individual defendants "solicited investors and/or converted existing funds of the partnerships to a series of [business operations not related to Checker restaurants] now insolvent or bankrupt." Mr. Kleban does not allege, however, that those other business committed any fraud or that he invested in them and lost any money. Indeed, when listing his damages, Mr. Kleban identifies only his lost investment in the various entities developing Checkers restaurants.

Even with the additional allegations pled by Mr. Kleban, Count V does not state a claim upon which relief may be granted. The fact that CDDT is in bankruptcy and Mr. Kleban, as a creditor in that bankruptcy, objects to certain transfers of assets and other facets of the bankruptcy does not establish an ongoing enterprise. CDDT and the other non-Checkers operations mentioned by Mr. Kleban are all in bankruptcy. Consequently, those schemes have ended. I must therefore decide whether there is an "implicit threat" of future criminal activity.

Looking at the multi-factor continuity test provided in Midwest Grinding, I find that Mr. Kleban has still not alleged facts showing that he can demonstrate that the fraud is likely to recur. Here, the predicate acts were committed over a substantial period of time, three years, and although Mr. Kleban alleges 15 separate predicate acts, they are all mail fraud, wire fraud, or securities fraud related to the Checkers operation. Moreover, although Mr. Kleban alleges the presence of other victims, he provides no facts regarding how many of them there were or how they were defrauded. Mr. Kleban also attempts to allege the presence of separate schemes, by claiming that the defendants solicited investors for other business operations, but he does not assert that the defendants have committed fraud in doing so. Finally, Mr. Kleban still fails to allege distinct injuries. He simply lost his investment in Checkers restaurants. For these reasons, I find that Mr. Kleban cannot establish the continuity requirement and consequently his RICO claim will be dismissed.

Mr. Kleban can show neither that he has an immediate right to return of the funds allegedly converted by the defendants nor that the funds have always belonged to him. Mr. Kleban alleges that the defendants "wrongfully converted funds of [the Southwest Partnership], along with funds from loans and investments in CDDT." Money owed to the Southwest Partnership or CDDT is not property belonging to Mr. Kleban. As Mr. Terzakis points out, an individual partner does not have standing to sue a third party to recover property belonging to the partnership. See Sindelar v. Walker, 137 Ill. 43, 27 N.E. 59 (1891). Consequently, Mr. Kleban cannot sue under a conversion theory to recover the investment he made in the Southwest Partnership.

Mr. Kleban concedes that this principle bars his suit to recover Southwest Partnership funds, but he advances two arguments why his claim should stand anyway. First, Mr. Kleban argues that, in addition to the Southwest Partnership investment, he lent money to CDDT as a shareholder. As with his partnership investment, however, Mr. Kleban has no immediate right to possess money he lent to CDDT. He is a creditor of CDDT who must follow proper bankruptcy procedures to obtain the debt CDDT owes to him. Moreover, as a shareholder of CDDT seeking to recover money misappropriated from CDDT, Mr. Kleban's proper remedy is a shareholder derivative action. See, e.g., Borgsmiller v. Burroughs, 187 Ill. App. 3d 1, 542 N.E.2d 1281, 1286, 134 Ill. Dec. 774 (5th Dist. 1989) ("[A] cause of action for misappropriation of corporate assets belongs to the corporation rather than to individual stockholders, and must be brought in a derivative action."). He may not attempt simply to obtain funds belonging to CDDT for himself. Finally, because Mr. Kleban lent the money to CDDT, he cannot show that the money "at all times belonged to [him]."

Mr. Kleban also argues that "it is entirely unclear as to whether [sic] any or all of the Plaintiff's monies were ever applied to the Southwest or CDDT accounts." Mr. Kleban's theory seems to be that if someone had wrongfully cashed his check and never given the money to the Southwest Partnership or to CDDT, then he would have a claim for conversion against that person. However, Mr. Kleban does not allege that the defendants stole his check, rather than depositing it into CDDT's account. He alleges that the moving defendants stole money from the Southwest Partnership and CDDT. Because Mr. Kleban cannot show an immediate right to possess those funds, his claim for conversion will be dismissed against the moving defendants.

THIS MATTER coming to be heard upon the Plaintiff's Motion for the Entry of a Default Judgment against the Defendant, CHECKERS DRIVE-IN RESTAURANTS, INC., a Delaware corporation, the parties being duly notified and the Court being fully advised in the premises:

IT IS HEREBY ORDERED:

1. Pursuant to a Prove-Up Hearing held by way of Affidavit, Default Judgment in the amount of $ 4,162,018.80 is entered in favor of the Plaintiff and against the Defendant, CHECKERS DRIVE-IN RESTAURANTS, INC.

2. This Order is a final appealable Order and the Court finds that there is no just reason to delay appeal or enforcement of this Order.

Dated: June 7, 1996

This ORDER is Entered Nunc pro tunc APRIL 26, 1996.

ENTER:

Judge Elaine E. Bucklo

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